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First Two Bank Failures of 2017

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First Two Bank Failures of 2017

With only five bank failures in 2016, I was thinking we might go several months into 2017 without a bank failure. That wasn’t the case. Two banks have already failed in 2017, and January isn’t over yet. The latest one happened yesterday. Seaway Bank and Trust Company of Chicago was closed on Friday by Illinois regulators. The FDIC arranged for State Bank of Texas to assume all deposits. The first bank failure of 2017 occurred on January 13th when New Jersey regulators closed Harvest Community Bank. The FDIC arranged for First Citizens Bank to assume all deposits.

Both failed banks were small, but both were larger than the largest bank that failed in 2016. Harvest Community Bank had four branches and assets of $126.4 million. Seaway Bank and Trust Company had ten branches and assets of $361.2 million. The largest bank that failed in 2016 was First CornerStone Bank in Pennsylvania with $103 million in assets.

Both of this month’s bank failures were typical in that the FDIC arranged for another bank to assume all of the deposits. According to the FDIC:

No one lost any money on deposit as a result of the closure of this bank. All deposits, regardless of dollar amount, were transferred to [State Bank of Texas or First Citizens Bank]

For both cases, the deposits that were transferred included brokered deposits. In past closures, certain brokered deposits have sometimes been excluded in the transfer implying that depositors who had brokered deposits over the FDIC limit may have had some loss.

CD customers of these failed banks will have to wait to see what happens with their rates. Neither bank has posted its policy regarding legacy CDs. According to the FDIC’s Q&A for Seaway Bank and Trust Company:

Interest on deposits accrued through close of business on January 27, 2017 will be paid at your same rate. Seaway Bank and Trust Company’s rates will be reviewed by State Bank of Texas and may be lowered; however, you will be notified in writing of any changes. You may withdraw funds from any transferred account, regardless of whether your interest rate changes, without early withdrawal penalty until you enter into a new deposit agreement with State Bank of Texas.

The FDIC Q&A regarding interest on deposits for Harvest Community Bank was very similar.

History of the Failed Banks

My only blog post on Seaway Bank was in 2009 when the bank was offering a competitive 2-year CD. The only other time I mentioned the bank was in 2011 and 2010 when it acquired failed banks.

I wrote about Harvest Community Bank twice, once in 2010 when it was offering a competitive 5-year CDs and once in 2014 when it was offering a good deal on a 1-year CD. Unlike Seaway Bank, it had not done any acquisitions of failed banks in recent times.

History of the Acquiring Banks

Both State Bank of Texas and First Citizens Bank have been acquiring failed banks over the last few years. In 2014, State Bank of Texas acquired The National Republic Bank of Chicago which gave State Bank of Texas its first branches outside of Texas. First Citizens Bank has a long history of acquiring failed banks with four bank acquisitions in the last two years. It now has over 500 branches in 19 states.

There have been no credit union liquidations so far in 2017.

Below is the summary of January’s bank failures:

2nd Bank Failure of 2017 (1st in Illinois) (January 27)

  • Closed Bank: Seaway Bank and Trust Company, Chicago, IL
  • FDIC Press Release
  • Size: 10 branches, $361.2 million in assets and $307.1 million in deposits
  • Acquiring Bank: State Bank of Texas, Dallas
  • Possible Uninsured Deposits: all deposit accounts, including brokered deposits, have been assumed by State Bank of Texas (FDIC Q&A)
  • Rate Changes: rates will be reviewed by the new bank and may be lowered (FDIC Q&A)
  • Estimated Cost to Deposit Insurance Fund: $57.2 million
  • Financial Ratings: 1 star at Bankrate.com, 0 star at BauerFinancial, F & Texas Ratio of 179% at DepositAccounts.com (see financial rating note)

1st Bank Failure of 2017 (1st in New Jersey) (January 13)

  • Closed Bank: Harvest Community Bank, Pennsville, New Jersey
  • FDIC Press Release
  • Size: 4 branches, $126.4 million in assets and $123.8 million in deposits
  • Acquiring Bank: First-Citizens Bank & Trust Company, Raleigh, NC
  • Possible Uninsured Deposits: all deposit accounts, including brokered deposits, has been assumed by First-Citizens Bank & Trust Company (FDIC Q&A)
  • Rate Changes: rates will be reviewed by the new bank and may be lowered (FDIC Q&A)
  • Estimated Cost to Deposit Insurance Fund: $22.3 million
  • Financial Ratings: 1 star at Bankrate.com, ? star at BauerFinancial, F & Texas Ratio of 363% at DepositAccounts.com (see financial rating note)

Financial Ratings Notes: 0 star is lowest at BauerFinancial, 1 star is lowest at Bankrate.com and an F is lowest at DepositAccounts.com, Texas Ratios over 100% is considered at risk. Ratings at DepositAccounts.com and BauerFinancial are based on September 30, 2016 data. Ratings at Bankrate.com are based on December 31, 2015 data.

References:

Comments


#1 - This comment has been removed for violating our comment policy.
AnOM
AnOM   |     |   Comment #5
with these bank closures, for brokered cds do those that own them have the same ability to withdraw with no penalty, as brokered cd's can be sold on secondary market at any time (but not at 100%). if rates transfered are lowered, i wonder if those that own them can have them redeemed without going on the secondary market
Anonymous
Anonymous   |     |   Comment #6
If within FDIC limits and the assuming bank changes the interest rate.